relation between supply and demand
According to the principle of microeconomics, when the supply of a commodity exceeds the demand, its price falls, and vice versa. At the same time, prices in turn will affect supply and demand. That is, when prices rise, supply will increase and demand will decrease. Conversely, demand will rise and supply will decrease. Therefore, prices and supply and demand affect each other.
An important indicator of supply and demand is inventory. The inventory of copper is divided into reporting inventory and non reporting inventory. The reported inventory, also known as "explicit inventory", refers to the inventory of the exchange. At present, the London Metal Exchange (LME), the COMEX branch of the New York Mercantile Exchange (NYMEX) and the Shanghai Futures Exchange (SHFE) are the most influential copper futures exchanges in the world. All three exchanges regularly publish the inventory of designated warehouses.
Unreported inventory, also known as "hidden inventory", refers to the inventory held by manufacturers, traders and consumers worldwide. Since these inventories will not be published regularly, it is difficult to count them, so they are generally measured by the stock of the exchange.
Macroeconomic situation
Copper is an important industrial raw material, and its demand is closely related to the economic situation. When the economy grows, the demand for copper increases, which drives the copper price to rise. When the economy is depressed, the demand for copper shrinks, which drives the copper price to fall
When analyzing the macro-economy, two indicators are very important. One is the economic growth rate, or GDP growth rate, and the other is the industrial production growth rate.
Import and export policy
The import and export policy, especially the tariff policy, is an important means to balance the domestic supply and demand by adjusting the import and export costs of commodities to control the import and export volume of a commodity. China has implemented zero tariff on refined copper imports since January 1, 2008, and the export tax rate on high-purity refined copper is 5%. The export tax rate of 10% was applied to copper master alloys (Announcement No. 79 of the General Administration of Customs in 2007), and the import and export tax rates were reduced.
Expansion and substitution of copper consumption
Consumption is a direct factor affecting copper price, and the development of copper industry is an important factor affecting consumption. For example, after the 1990s, the developed countries saw a huge increase in the use of copper for pipelines in the construction industry, and the construction industry became the industry with the largest consumption of copper, which promoted the rise of the international copper price in the mid-1990s. The housing utilization rate in the United States also became one of the factors affecting copper prices. Since 2003, the development of China's real estate and electricity has greatly promoted the growth of copper consumption, which has become one of the factors supporting copper prices. In the automotive industry, manufacturers are advocating to replace copper with aluminum to reduce vehicle weight and thus reduce copper consumption in the industry. In addition, with the rapid development of science and technology, the application scope of copper is expanding, and copper has begun to play a role in medicine, biology, superconductivity, environmental protection and other fields. IBM (Weibo) The company has adopted copper to replace aluminum in silicon chips, which marks the latest breakthrough in the application of copper in semiconductor technology. These changes will affect copper consumption to varying degrees.
Production cost of copper
Production cost is the basis of measuring commodity price level. The production cost of copper includes smelting cost and refining cost. Different mines estimate copper production costs differently. The most common economic analysis is to use "cash flow breakeven cost", which decreases with the increase of by-product value. After the 1990s, the production cost showed a downward trend.
At present, the average comprehensive cash cost of copper pyrometallurgy in western countries is about 70-75 cents/pound, and the average cost of copper hydrometallurgy is about 45 cents/pound. At present, the output of copper hydrometallurgy accounts for about 20% of the total output. The calculation of domestic production cost is different from that of international production cost.
The problem of processing fee (TC/RC): The change of processing fee (TC/RC) reflects the change in the game position of mines and smelters in the copper industry chain. In recent years, with the concentration of copper resources and the rapid growth of smelting capacity, the TC/RC has a downward trend year by year. For example, the TC/RC signed by BHP, Jiangxi Copper and Tongling in 2008 was 47.2/4.72, a decrease of 21% compared with the annual terms in 2007.
(Note: Data from CRU UK Commodity Research Bureau)
Trading direction of the fund
Although the history of the fund industry is very long, it did not develop vigorously until the 1990s. At the same time, the degree of fund participation in commodity futures trading has also increased significantly. Judging from the evolution of the copper market in the last decade, funds have played a role in driving the waves in many big markets.
There are large and small funds, and the operation methods vary greatly. Generally speaking, funds can be divided into two categories. One is macro funds, such as arbitrage funds, which are large in scale, ranging from several billion dollars to tens of billions of dollars, mainly for strategic long-term investment. The other is short-term funds, which are managed by CTA (Commodity Trading Advisors). They are small in size, generally around $100 million. They rely on technical analysis for short-term operations, so they are also called technical funds.
From the changes of COMEX copper price and non-commercial position (generally considered as the speculative position of the fund), there is a very good correlation between the rise and fall of copper price and the position of the fund. Moreover, because the fund has a deeper understanding of the macro fundamentals and has "foresight", understanding the trend of the fund is also the key to grasp the market. Judging from the trend of copper price in recent years, especially since 2005, funds are the huge driving force behind the rapid and sharp rise of copper price.
The price fluctuation of related commodities such as oil will also have an impact on copper price
Both crude oil and copper are internationally important industrial raw materials, and their strong demand can best reflect the quality of the economy. Therefore, in the long run, the level of oil and copper prices has a good correlation with the speed of economic development. Because both crude oil and copper are closely related to the macro-economy, there is a positive correlation between copper prices and oil prices to some extent. However, they are only consistent in trend, and not necessarily consistent in short-term price fluctuations.
Exchange rate fluctuations
Copper transactions in the world are generally priced in US dollars. At present, several major currencies in the world are subject to the floating exchange rate system. With the official launch of the euro on January 1, 1999, the international foreign exchange market has formed a tripartite confrontation of the US dollar, the euro and the yen. Since the price of these three major currencies often changes significantly, the international copper price denominated in US dollars will also be affected by the exchange rate, which can be seen from 1994 to 1995 USD/JPY This is reflected in the sharp drop of the Euro, the weakness of the Euro in 1999-2000 and the continuous depreciation of the US dollar in recent years.
According to past experience, changes in the exchange rates of yen and euro will affect short-term fluctuations in copper prices, but will not change the general trend of the copper market. The impact of the US dollar exchange rate on copper prices is deepening, and is widely considered to be one of the important reasons for the sharp rise in copper prices since 2003. However, the fundamental factor determining copper prices is still the fundamental supply and demand relationship.
